COSTCO, Adam Smith, and Healing America.

Posted on | December 10, 2014 | 3 Comments

Mike Magee

Today, on CNBC, highest cudos went to COSTCO’s, not simply for exceeding expectations with a 7% year-over-year growth, but for having the lowest employee turnover of any major retail business in the United States.

COSTCO’s founder was well known for saying he purposefully paid his employees way above a living wage (because it was only right) and was still a billionaire. He wasn’t fudging. In fact, according to Bloomberg Businessweek in June, 2013, current CEO Craig Jelinek confirmed that the average hourly worker at COSTCO made $20.89 an hour, not including overtime, and received great health benefits to boot.

Compare that with the famous, flag-waving, nickle and dime leadership of Walmart which weighs in with skimpy benefits and an average hourly wage of $12.67. But the CNBC analysts noticed one thing more about COSTCO – it feels better to shop there because the workers are happy, healthy, helpful and productive.

Now none of this is exactly break-through thinking or revelatory knowledge. However, it caught my eye because I’ve  been reading Eli Ginzberg’s “The House of Adam Smith”. The legendary “maverick health economist” earned his PhD at Columbia in 1934 at the age of 23 with a dissertation that explored the sociopolitical factors shaping Adam Smith’s classic “The Wealth of Nations”.

Years later, Ginzberg recalled, “I could not possibly reconstruct the sense of excitement that I experienced as I read the book for the first time. Nor could I reconstruct the intensity of my feelings as I saw the possibility of correcting a major historic misinterpretation and revealing Adam Smith for what he was, a liberal reformer, instead of as so many wished him to be, a rigid defender of free enterprise.”

Eli taught over 10,000 students in his 53 years at Columbia. His last class occurred on December 3, 2002. That was one week before he died, just short of his 92nd birthday. I am not certain what he taught that day, but I am absolutely convinced from my conversations with him over the years that Adam Smith was close at hand and near the surface.

According to his good friend and Business School colleague, James W. Kuhn, “Smith’s approach to economics would become Eli’s own”, specifically, “…the habit of evaluating policies by their contributions to peoples lives, a natural preoccupation for Smith who was best known during his lifetime as a moral philosopher.”

Adam Smith was born June 16, 1723, in Kirkcaldy, Scotland, forty miles from Edinburgh. Eli Ginzberg was born on April 30, 1911 in New York City.

What does Eli (and therefore Adam Smith) in his “House of Adam Smith”, have to say about our current environment, the 99.9%, productivity and justice? Here are a few excerpts:

On corporate appeals to government, off-shore wealth, and cloaking oneself  in patriotism:

“The confusion was tremendous. The babble of special pleadings became most disconcerting to the quiet student. But a few skeptics were able to see the forest for the trees. The people were bewitched by the word liberty. All crimes could be committed under its aegis. All is fair in love and war and in the struggle for liberty…Adam Smith listened to the trading interest but was not greatly impressed with its plea. He was convinced that merchants were not citizens of any country and was therefore amused by their appeal for public support on the basis of patriotism.”

On productivity:

“Smith was not the first to advance the theory that all wealth is derived from labor. Smith however broke new ground in building the complete system of economic thought around the concept of productive labor….The history of the world was in his opinion the history of the increasing efficiency of labor.”

On the attitudes of rulers toward the 99.9%:

“The rulers of the state despised the populace, and, except in times of crisis when man power became important, ignored it completely. During normal periods the commonalty had to labor hard, pay high taxes, and behave itself. Art, politics, and learning were the vested interests of the rich and powerful.”

On Corrosive Government Policies; (note: the Settlement Acts sought to assign management of the growing poor population to the geographic locality of birth or residency – thus restricting mobility and opportunity; and the Apprenticeship Acts required 7 years of servitude labor before hanging a shingle – which rarely followed.)

“The Settlement and Apprenticeship Acts interfered with both the supply of labor and the conditions of labor…Corporations with exclusive privileges were established better to enforce the apprenticeship regulations…. The apprenticeship regulations were undoubtedly a great boon to the masters…. Masters were frequently permitted to establish rules and regulations for the conduct of their business. In most cases the charter members of the corporation limited the number of people who might engage in their trade….Novices upon the payment of an entrance fee receive free board and lodging in return for 14 hours worked per day….An apprenticeship after seven years of service became a journeyman. He didn’t receive wages for his labor and secured a modicum of independence. In theory, but not in practice, a journeyman might become a master after several years additional service. Without wealthy relatives one could never hope to become the head of a trade for often a capital of several hundred or even thousand pounds was required.”

On Congressional Inaction: Cost-Of-Living/Minimum Wage/Trickle Down Economics:

“The government viewed with favor the apprenticeship and corporation laws for it believed that the public benefited from the regularization of industry. However it really was an impertinent affectation to maintain that any good could result from legislative measures which trampled upon the most sacred property of man – his labor.”

On Unintended Outcomes (Think Kansas tax policy; Ferguson, MO, militarization of police; Staten Island, NY police policy- 2014):

“During the second decade of the 18th century, one estimate placed the number of unprofitable poor at 1,500,000. The care of the poor developed into England’s most important industry. The burden was especially severe upon the landowners. The land tax was very high….The great increase of robberies which took place during the middle of the century could be explained only by the desperate condition of the poor.”

On Fear Post- 9/11 and Torture:

“The liberties of Englishmen have been severely curtailed in an attempt to solve this perplexing problem….The various regulations violated natural liberty and justice without achieving any practical results. Unfortunately, the common man, after suffering from these oppressions for more than a hundred years, had not yet rebelled.”

On the Economics of Justice:

“When piece work is well rewarded, laborers frequently overstrain themselves in their desire to improve their position.”

In studying Adam Smith, Eli executed  his own conversion from Economist to Moral Philosopher. Shortly after completing his initial field studies, in 1939, he laid out the truisms that would be his “touch posts” for the next 6+ decades. He said that economic policies should “seek equity; that a self-regulatory economy is an oxymoron; that government played a critical role in regulating the economy; that racism was an unsolved problem; that our continental dimensions had an important impact; and finally that we could no longer be an island unto ourselves.”

For Health Commentary, I’m Mike Magee.

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